Intel’s Beautiful ‘OnCue’ Falls to Changing of the Guard, Need to Cozy Up to Verizon

By Tiernan Ray

Intel (INTC) this morning announced its ambitious project to lift television into the Internet age, called “OnCue,” will be sold to Verizon Communications (VZ) for undisclosed terms. Verizon indicated it intends to integrate the technology into its “FiOS” video platform.

A source close to Intel indicated the sale price was “between $200 million and $300 million,” confirming speculation by Variety magazine’s Todd Spangler.

The source indicates that OnCue fell victim to the changing of the guard at Intel, with CEO Brian Krzanich taking over from Paul Otellini last May. As has been widely observed, Krzanich’s focus is on returning Intel to its chip-making roots, with few distractions, as the company places increased focus on making progress in chips for mobile devices

Otellini had been “totally committed” to the project, said a source. He had been “willing to go the distance.” And to his credit, Krzanich was apparently willing to consider whether partnerships would allow the project to continue. But at some point, says the source, it became clear there was “zero interest” at Intel in progressing, and that resistance to a sale was futile.

Some may speculate that other parties in the media universe weren’t interested in buying OnCue, given the asking price was apparently much less than a reported $1 billion originally.

But the source indicates that in some ways Intel was willing to strike a deal with Verizon in order to tighten the relationship with the carrier, regardless of what other deals were possible.

There was “an amazing amount of interest from the industry,” says the source, with many parties coming forward expressing an interest in OnCue.

But “very early on, the two CEOs got together,” meaning Intel’s Krzanich, and Verizon’s Lowell McAdam. Given Intel’s lack of traction in mobile, and Verizon’s control of the mobile world in the U.S., the deal, in other words, became as much about cozying up to Verizon as about offloading a distraction to Intel.

“Think of it in a way where you have a new CEO who has a strategy of delivering chips into phones and tablets, and no relationship with those big players,” the carriers, says the source.

“When you have zero market share in mobile, one could argue there is a need to cement the relationship” with Verizon.

I had offered a profile of OnCue last summer in Barron’s print magazine. OnCue was beautiful in its simplicity, with an elegant on-screen menu, and the ability to not only watch live television with only a broadband connection, but also the ability to surf through weeks of past television episodes.

Content deals had been worked out with enough owners to make the service viable, said the source, deals with which the OnCue team were “perfectly happy.”

Original sticking points for content owners were not just the price of content, said the source, but also whether content would get credit for Internet broadcast because traditional Nielsenhousehold measurements don’t match up to Internet viewing. The team finessed that problem, and even finessed the problem that some content partners didn’t have rights to all the content, and were worried about upsetting existing partners.

Said the source, once those problems were dealt with, although everything comes down to price, “They [content owners] asked for the moon, they didn’t get it, and things ended up in a situation that was very comfortable” for OnCue.

OnCue even had “pop-up” stores ready to go in New York, Chicago and Venice. Those stores did not go live as deals progressed, and instead were converted to Intel “experience stores.”

The question going forward is whether Verizon is in earnest about promoting OnCue. The carrier certainly has tremendous assets, not just FiOS, but also the biggest LTE network in the country, 100 million subscribers, and retail outlets galore. But there’s always a possibility, says a source, that despite all the hard work around content deals, Verizon may go back to the table to renegotiate.

However, the source described Verizon’s McAdam being in accord with the vision and strategy of the OnCue service.

Verizon, it should be noted, has been gobbling up assets that are relevant, such as EdgeCast, the content delivery network, in December, and upLynk, a cloud-based television technology provider, in November.

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There are 3 comments

JANUARY 21, 2014 3:54 P.M.

Brian Pike wrote:

Tiernan: I would like to read more about how INTC cozying up to VZ would potentially benefit INTC's mobile efforts. VZ doesn't make or design phones, they just sell them and offer plans. Thus its not clear to me how a closer relationship with VZ would provide more mobile chip traction to INTC.

Thanks,

Brian

JANUARY 21, 2014 4:46 P.M.

Tiernan Ray wrote:

Brian: The thinking of the source referenced is that Intel would like to tighten its relationship with Verizon because the carrier has discretion over which phones they promote in their stores. By being closer to Verizon, Intel might be able to exert influence to convince Verizon to promote phones that are made by vendors who use Intel's chips, rather than promoting phones that use some other vendor's chips. That is the theory, at least.

JANUARY 21, 2014 4:59 P.M.

Brian Pike wrote:

Tiernan: Thanks very much for taking time to clarify. I'm long INTC and am thus interested in their mobile saga.

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.